• 27 September 2017
  • From the section Business

U.S. President Donald Trump (C) speaks during a meeting with members of the House Ways and Means Committee as committee chairman Rep. Kevin Brady (R-TX) (R) and ranking member Rep. Richard Neal (D-MA) (L) listen September 26, 2017 at the Roosevelt Room of the White House in Washington, DC. President Trump met with members of the committee to discuss tax reform.Image copyright
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Top Republicans have been meeting for months to thrash out a plan to overhaul the US tax code

US President Donald Trump will call for major tax cuts for business in a speech later, as a longstanding Republican effort to overhaul the US tax code takes centre stage.

Top Republicans released a framework for the tax overhaul earlier.

They are looking for a policy win, after repeated failure to reform the US healthcare system.

Among the planned changes is a cut in the corporation tax rate from 35% to 20%.

US Treasury Secretary Steven Mnuchin described the document released on Wednesday as a template that Congress will use to craft legislation.

In addition to the corporate tax cut, the negotiators said they have agreed to change the tax on overseas profits and create a top 25% rate for small businesses and firms organised as “pass-through entities” such as limited liability corporations.

For families, negotiators plan to nearly double the amount individuals and families can deduct, increase the tax credit for children and introduce a new tax credit for dependents who are not children, such as the elderly or disabled. They will also eliminate a tax on inheritance.

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US tax reform: Tough task for Trump

The Trump administration had earlier pledged to achieve tax reform before the end of August.

A so-called “Big Six” team of negotiators have spent months meeting to thrash out a framework, with the aim of simplifying the code and cutting rates, especially for businesses.

But it has been tough to reach agreement on even the broad goals released on Wednesday, many of which are familiar from earlier proposals.

Democrats oppose cuts for the wealthy and some conservatives are worried that cuts will add to the deficit.

Many key details still need to be worked out.

For example, lawmakers want to slim the number of tax brackets to three – with filers charged at a 12%, 25% or 35% rate – but what incomes would qualify for each rate remains to be seen.

Currently, the bottom rate is 10% and the top rate is close to 40%.

White House officials rejected the idea that the plan would increase the tax burden on lower income families, citing the increased amount households will be able to deduct.

They also said that the framework leaves Congress the flexibility to maintain a fourth, higher rate on the wealthiest households.

Lawmakers are also grappling with how to pay for the tax cuts.

The Trump administration maintains that closing loopholes will help offset revenue loss, but the plan does not specify what benefits will be eliminated.

Lawmakers plan to preserve tax incentives for homeownership, retirement, education, as well as research and development. White House officials said they intend to erase deductions for state and local taxes, among others.

They also say the reform will spur growth, helping to cover the cost.

Economists say it will not be enough to close the gap and expect the plan to add to the US debt, which has already passed $20 trillion.

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